by Dominique Molina
A home-based business can be a tremendous way to earn a living. You don’t have to worry about leasing retail space, dealing with the commute, and you can save a ton of money on your taxes, too.
Like any other business, there are risks, too. A tornado could strike your home business just as well as it could an office, for example. When disaster strikes a home business, you face a double loss: not only have you lost your home, you’ve lost your place of work (and source of income).
It might surprise you to know that your home business may not be covered under your homeowners insurance, either. If you want peace of mind knowing that your home will be safe in the event of a disaster, here are some principles you need to follow for insuring your home business:
Every home business is unique. What’s right for a graphic designer that works from home is probably not right for someone who makes and sells baked goods in his kitchen. You need to look at several factors, including inventory, equipment costs, liability, and business structure in order to choose the right type of insurance coverage for your home business.
Know what is and what isn’t covered under your homeowner’s insurance. Your homeowner’s policy is only going to cover a small amount of business-related equipment, if any. Typically, a homeowner’s policy will cover somewhere between $1,000 and $2,500 in business equipment. Furthermore, your policy isn’t going to include any liability or loss of income protection.
For businesses without inventory or large capital investments, a rider or endorsement might be enough. In many cases, you can simply add a rider or endorsement to your existing homeowner’s policy that will cover your home business. This kind of endorsement can be very inexpensive, as little as $15 a year in some places. This will increase the limits on your homeowner’s policy. It won’t cover liability, and it won’t cover inventory or loss of income, however.
A home office policy offers greater protection. A separate home office insurance policy offers more protection. It will provide for lost income and expense reimbursement if your business is not able to operate because your home has been damaged. It will usually cover lost records, business property that’s stored off site, and even accounts receivable.
A business owner’s policy is more appropriate for certain businesses. If you stock inventory, are involved in the manufacture of goods, or if your business carries a large degree of professional liability, you might need a full business owner’s policy. This gives you all that a home office policy gives you, but it also adds on product coverage as well as liability coverage for when you’re off the premises.
Some businesses will require special insurance considerations. For example, certain high-risk industries may find that they need to enroll in a specific sort of insurance policy that doesn’t exclude the type of work that they do. Those businesses that involve professional services need to be aware of the inherent risks in a lawsuit, for example, and make sure that they have the right kind of insurance to keep the business running even if a disgruntled customer takes you to court.
Don’t forget about other types of insurance, either. You need to pay attention to other business-related insurance needs beyond property and liability, such as motor vehicle insurance. If you use a vehicle for business purposes, you need to make sure that it’s covered when you’re using it for business, as well. Depending on the size and structure of your business, you might need to look at workers’ compensation insurance, health insurance, and more.
It really pays to shop around. Like any other type of insurance, shopping around for the right home business insurance is essential. Talk to your existing insurance provider, as you might qualify for a multi-line discount. Make sure that, as you get quotes from various providers, deductibles and policy limits are the same, so that you can compare like products. Remember that price alone isn’t the only consideration, as reputation and quality of service are especially important when you’re talking about home business insurance.
Your home business is in many ways the fulfillment of a dream. Yet, one single incident can turn that dream into a nightmare. Review your current insurance coverage today, and talk to your insurance agent or financial professional about making sure you have the right coverage going forward.
Dominique Molina is President of the CertifiedTaxCoach.org, a professional membership organization that provides tax-specific resources such as engagement letter and accounting templates.